Nomura sees 30 percent upside for Gail India on one-time boost from tariff hike and petchem recovery

Shares of Gail India are higher by over 2.5 percent to be the top F&O gainer in the trading session on September 11, after brokerage Nomura issued a Buy call with a target of Rs 225 per share, which is nearly 30 percent higher than the last closing price, projecting that the company will get a one-time benefit from the proposed tariff hikes.

Nomura said a tariff hike could provide a one-time boost to Gail India, with an integrated tariff increase of over 20 percent could potentially surprise investors on the upside. The note also said that Gail's petchem segment is expected to start seeing a recovery from FY27e onwards, contributing to the high investor interest in the stock.

Gail India has already seen volumes of 55 lakh shares, at more than half of its one-month and one-week average. On a YTD basis, shares of Gail India are lower by 6.7 percent, and over the last one year, the shares are down 18 percent. However, over the last three years, Gail India shares are higher by 93 percent. The month of September has traditionally been positive for the stock, with the company delivering positive returns in 13 out of last 17 years during the month.

The company has submitted a request to Petroleum and Natural Gas Regulatory Board (PNGRB) for a 33 percent increase in gas tariff to Rs 78/mmbtu, citing rising cost of substitute gas used by compressors in pipeline operations, since gas allocation under Administered Price Mechanism (APM) has been cut to zero. Also, the capacity determination by PNGRB for GAIL’s integrated pipeline has come out to be lower than previously expected.